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Multiple-Choice Questions for International EconomicsbyDr. Bob Carbaugh Department of Economics Central Washington UniversityChapter 1: The International Economy and GlobalizationA primary reason why nations conduct international trade is because: a. Some nations prefer to produce one thing while ot...

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Multiple-Choice Questions for International Economics

by

Dr. Bob Carbaugh Department of Economics Central Washington University

Chapter 1: The International Economy and Globalization

A primary reason why nations conduct international trade is because: a. Some nations prefer to produce one thing while others produce another *b. Resources are not equally distributed to all trading nations c. Trade enhances opportunities to accumulate profits d. Interest rates are not identical in all trading nations A main advantage of specialization results from: *a. Economics of large scale production b. The specializing country behaving as a monopoly c. Smaller production runs resulting in lower unit costs. d. High wages paid to foreign workers International trade in goods and services is sometimes used as a substitute for all of the following except: a. International movements of capital. b. International movements of labor. c. International movements of technology *d. Domestic production of different goods and services If a nation has an open economy it means that the nation: a. Allows private ownership of capital. b. Has flexible exchange rates c. Has fixed exchange rates *d. Conducts trade with other countries International trade forces domestic firms to become more competitive in terms of: a. The introduction of new products b. Product design and quality

c. *d.

Product price All of the above

The movement to free international trade is most likely to generate short-term unemployment in which industries: a. Industries in which there are neither imports nor exports *b. Import-competing industries. c. Industries that sell to domestic and foreign buyers d. Industries that sell to only foreign buyers International trade is based on the idea that: a. Exports should exceed imports b. Imports should exceed exports c. Resources are more mobile internationally than are goods *d. Resources are less mobile internationally than are goods Arguments for free trade are sometimes disregarded by politicians because: a. Maximizing domestic efficiency is not considered important *b. Maximizing consumer welfare may not be a chief priority c. There exist sound economic reasons for keeping one’s economy isolated from other economies. d. Economists tend to favor highly protected domestic markets Which American industry has least been affected by import competition in recent years a. Automobiles b. Steel c. Radios and TVs *d. Computer software The largest amount of trade with the United States in recent years has been conducted by: *a. Canada b. Germany c. Mexico d. United Kingdom Increased foreign competition tend to a. Intensify inflationary pressure at home b. Induce falling output per worker-hour for domestic workers *c. Place constraints on the wages of domestic workers d. Increase profits of domestic import-competing industries For the United States, exports plus imports are about ______ of its gross national product: a. 5 percent b. 10 percent *c. 25 percent d. 55 percent Major trading partners of the United States including all of the following countries except: a. Canada b. Mexico c. China *d. North Korea

Free traders maintain that an open economy is advantageous in that it provides all of the following except: a. Increased competition for world producers b. A wider selection of products for consumers c. The utilization of the most efficient production methods *d. Relatively high wages levels for all domestic workers Recent pressures for protectionism in the United States have been motivated by all of the following except: a. U.S. firms shipping component production overseas *b. High profit levels for American corporations c. Sluggish rates of productivity growth in the United States d. High unemployment rates among American workers International trade tends to cause welfare losses to at least some groups in a country *a. The less mobile the country’s resources b. The more mobile the country’s resources c. The lower the country’s initial living standard d. The higher the country’s initial living standard For the United States, automobiles are: a. Imported, but not exported *c. Exported and imported

b. d.

Exported, but not imported Neither imported not exported

A feasible effect of international trade is that a (an): *a. Monopoly in the home market becomes an oligopoly in the world market b. Oligopoly in the home market becomes a monopoly in the world market c. Purely competitive firm in the home market becomes an oligopolist d. Purely competitive firm in the home market becomes a monopolist International trade in goods and services tends to: a. Increase all domestic costs and prices b. Keep all domestic costs and prices at the same level c. Lessen the amount of competition facing home manufacturers *d. Increase the amount of competition facing home manufacturers The real income of domestic producers and consumers can be increased by: a. Technological progress, but not international trade b. International trade, but not technological progress *c. Technological progress and international trade d. Neither technological progress nor international trade For the United States, commercial jetliners are: a. Imported, but not exported b. Exported, but not imported *c. Imported and exported d. Neither exported nor imported

Technological improvements are similar to international trade since they both: a. Provide benefits for all producers and consumers *b. Increase the nation’s aggregate income c. Reduce unemployment for all domestic workers d. Ensure that industries can operate at less than full capacity A sudden shift from import tariffs to free trade may induce short-term unemployment in: *a. Import-competing industries b. Industries that are only exporters c. Industries that sell domestically as well as export d. Industries that neither import nor export A reduced share of the world export market for the United States would be attributed to: *a. Decreased productivity in U.S. manufacturing b. High incomes of American households c. Relatively low interest rates in the United States d. High levels of investment by American corporations The most recent wave of globalization, which began in the 1980s, has emphasized the outsourcing of: *a. services and white-collar jobs b. manufacturing and blue-collar jobs c. natural resource extraction and mining jobs d. agriculture and farming jobs A country’s openness to international trade can be measured by the formula a Exports + Imports + GDP b. Exports – Imports – GDP c. (Exports + Imports) / GDP d. (Exports + Imports) X GDP

Chapter 2: Foundations of Modern Trade Theory Use the information in the table below to answer the next six questions. Country South Korea Japan

Tons of steel 80 20

The opportunity cost of one DVD in Japan is: *a. One ton of steel c. Three tons of steel

DVDs 40 20

b. d.

Two tons of steel Four tons of steel

The opportunity cost of one DVD in South Korea is: a. One-half ton of steel b. One ton of steel c. One and one-half tons of steel *d. Two tons of steel According to the principle of absolute advantage; Japan should: a. Export steel b. Export DVDs c. Export steel and DVDs *d. There is no basis for gainful specialization and trade According to the principle of comparative advantage: *a. South Korea should export steel b. South Korea should export steel and DVDs c. Japan should export steel d. Japan should export steel and DVDs With international trade, what would be the maximum amount of steel that South Korea would be willing to export to Japan in exchange for each DVD a. One-half ton of steel b. One ton of steel *c. Two tons of steel d. Two and one-half tons of steel With international trade, what would be the maximum number of DVDs that Japan would be willing to export to South Korea in exchange for each ton of steel: *a. One DVD b. Two DVDs c. Three DVDs d. Four DVDs

The earliest statement of the principle of comparative advantage is associated with: a. Adam Smith *b. David Ricardo c. Eli Heckscher d. Bertil Ohlin If Hong Kong and Taiwan have identical production possibilities curves that are subject to increasing opportunity costs: *a. Trade would depend on differences in demand conditions b. Trade would depend on economies of large-scale production c. Trade would depend on the use of different currencies d. There would be no basis for gainful trade If the international terms of trade settle at a level that is between each country’s opportunity cost a. There is no basis for gainful trade for either country *b. Both countries gain from trade

c. d.

Only one country gains from trade One country gains and the other country loses from trade

International trade is based on the notion that: a. Different currencies are an obstacle to international trade *b. Goods are more mobile internationally than are resources c. Resources are more mobile internationally that are goods d. A country’s exports should always exceeds its imports Mercantilism a. Is the philosophy of free international trade. *b. Was a system of export promotion and barriers to imports practiced by governments. c. Was praised by Adam Smith in The Wealth of Nations. d. Both (a) and (c). The classical trade theories of Smith and Ricardo predict that a. Countries will completely specialize in the production of export goods. b. Considerable trade will occur between countries with different levels of technology c. Small countries could obtain all of the gains from trade when trading with large countries *d. All of the above. The gains from international trade are closely related to: a. The labor theory of value *b. How much the autarky price differs from international terms of trade change c. The fact that a country must lose from trade. d. All of the above According to the classical theory of international trade: a. Only countries with low wages will export b. Only countries with high wages will import c. Countries with high wages will have higher prices *d. All the above are false In the classical model of Ricardo, the direction of trade is determined by: a. absolute advantage *b. comparative advantage c. physical advantage d. which way the wind blows Absolute advantage is determined by: *a. actual differences in labor productivity between countries. b. relative differences in labor productivity between countries. c. both (a) and (b) d. neither (a) nor (b) Comparative advantage is determined by: a. actual differences in labor productivity between countries. *b. relative differences in labor productivity between countries.

c. d.

both (a) and (b) neither (a) nor (b)

Answer the next five questions based on the production table below.

Product X Product Y

Country: Output per Labor Hour A B 3 9 4 2

Country A has an absolute advantage in a. Product X *b. Product Y c. Neither X nor Y d. Both X and Y Country B has an absolute advantage in *a. Product X b. Product Y c. Neither X nor Y d. Both X and Y If the countries were to trade along the lines of absolute advantage: a. A would export X to B *b. B would import Y from A c. Neither country would want to trade If countries were to trade along the lines of comparative advantage: a. A would export X to B *b. A would export Y to B c. Neither country would want to trade In autarky, the relative price of X, in terms of Y, in A would be: a. 1/2 Y b. 3/4 Y c. 1Y *d. 4/3 Y Answer the next five questions based on the production table below. Country: Output per Labor Hour A B Beer 3 9 Wine 1 2 Country A has an absolute advantage in: a. Beer c. Both products

b. *d.

Wine Neither products

In autarky, the relative price of wine, in terms of beer, in Country A is: a. 1W = 1B b. 1W = 2B *c. 1W = 3B d. 1W = 1/3B In autarky, the relative price of wine, in terms of beer, in Country B is: a. 1W = 3B *b. 1W = 4 1/2 B c. 1W = 5B d. 1W = 6B Country A has the comparative advantage in: *a. Wine b. c. Both wine and beer d.

Beer Neither wine nor beer

Country B has the comparative advantage in: a. Wine *b. Beer c. Both wine and beer d. Neither wine nor beer Answer the next four questions based on the production possibilities diagram below.

The relative price (MRT) of S in terms of T i: a. 2 c. 00

*b. d.

½ 1000

The relative price (MRT) of T in terms of S is: *a. 2 c. 500

b. d.

½ 1000

If the relative price (MRT) of S were to increase, then the price line would: a. shift out in a parallel fashion. b. shift in a parallel fashion. *c. Become steeper. d. Become flatter.

If the relative price (MRT) of T were to increase, then the price line would: a. shift out in a parallel fashion. b. shift in a parallel fashion. c. become steeper. *d. become flatter. If a country has a bowed out (concave to the origin) production possibility frontier, then production is said to be subject to: a. constant opportunity costs. b. decreasing opportunity costs. c. first increasing and then decreasing opportunity costs. *d. increasing opportunity costs. If a country has a linear (downward sloping) production possibilities frontier, then production is said to be subject to: *a. constant opportunity costs. b. decreasing opportunity costs. c. first increasing and then decreasing opportunity costs. d. increasing opportunity costs. The terms of trade is given by the prices: a. Paid for all goods exported by the home country. b. Received for all goods exported by the home country. *c. Received for exports and paid for imports. d. Of primary products as opposed to manufactured products. Given the terms of trade information in the table below, answer the next three questions:

Nation Mexico Sweden Spain France Denmark

Export Price Index 1990 100 100 100 100 100

Import Price Index 2000 1990 220 100 160 100 155 100 170 100 120 100

2000 200 150 155 230 125

Which countries’ terms of trade improved between 1990 and 2000. a. Mexico and Denmark b. Sweden and Denmark c. Sweden and Spain *d. Mexico and Sweden Given free trade, small nations tend to benefit the most from trade since they: a. Are more productive than their large trading partners. b. Are less productive than their large trading partners.

c. *d.

Have demand preferences and income levels lower than their large trading partners. Realize terms of trade lying near the MRTs of their large trading partners.

In autarky, when a community maximizes its standard of living, its production and consumption point is: a. below the production possibility frontier. *b. on the production possibility frontier. c. above the production possibility frontier. d. can’t tell without more information. In autarky equilibrium, a. production equals consumption. b. exports equal imports. c. there is no trade. *d. all of the above. In autarky, when a community maximizes its standard of living, its production point is: a. below the production possibility frontier. *b. on the production possibility frontier. c. above the production possibility frontier. d. can’t tell without more information. If the autarky price of S were lower in country A than in country B, then if trade were allowed: *a. A would likely export S to B. b. A would likely import S from B. c. neither country would want to trade. d. none of the above. Under free trade, Canada would not realize any gains from trade with Sweden if Canada: *a. Trades at Canada’s marginal rate of transformation. b. Trades at Sweden’s marginal rate of transformation. c. Specializes completely in the production of its export good. d. Specializes partially in the production of its export good. John Stuart Mill was the founder of the *a. Theory of reciprocal demand b. Theory of absolute advantage c. Theory of comparative advantage d. Theory of mercantilism Dynamic gains from trade could result from a. The stimulus of additional investment spending as markets open b. Economies of large scale production as markets open c. Additional competition made possible by the opening of markets *d. All of the above G. MacDougall compared export ratios and labor productivity ratios for the United States and the United Kingdom in order to test the

*a. b. c. d.

Ricardian theory of comparative advantage Heckscher Ohlin theory of comparative advantage Linder theory of overlapping demand all of the above

G. MacDougall showed in his tests that a. relatively higher U.S. labor productivity was associated with relatively higher U.K. export ratios *b. relatively higher U.K. labor productivity was associated with relatively higher U.K. export ratios c. labor productivity ratios and export ratios were not associated with each other. d. none of the above G. MacDougall’s empirical results can be interpreted as a. evidence against the classical model b. evidence against the Heckscher-Ohlin model *c. support for the Ricardian model d. support for the Heckscher-Ohlin model

Chapter 3: Sources of Comparative Advantage The Heckscher-Ohlin theory explains comparative advantage as the result of differences in countries’: a. Economies of large-scale production. *b. Relative abundance of various resources. c. Relative costs of labor. d. Research and development expenditures. The factor endowment model of international trade was developed by a. Adam Smith b. David Ricardo c. John Stuart Mill *d. Eli Heckscher and Bertil Ohlin Boeing aircraft company was able to cover its production costs of the first ―jumbo jet‖ in the seventies because Boeing could market it to several foreign airlines in addition to domestic airlines. This illustrates: *a. How economies of scale make possible a larger variety of products in international trade. b. A transfer of wealth from domestic consumers to domestic producers as the result of trade c. How a natural monopoly is forced to behave more competitively with international trade. d. How a natural monopoly is forced to behave less competitively with international trade. Which trade theory contends that a country that initially develops and exports a new product may eventually become an importer of it, and may no longer manufacture the product: a. Theory of factor endowments b. Theory of overlapping demands

c. *d.

Economies of scale theory Product life cycle theory

The theory of overlapping demands predicts that trade in manufactured goods is unimportant for countries with very different: a. Tastes and preferences b. Expectations of future interest rate levels *c. Per-capita income levels d. Labor productivities The trade model of the Swedish economists Heckscher and Ohlin maintains that: a. Absolute advantage determines the distribution of the gains from trade. b. Comparative advantage determines the distribution of the gains from trade. c. The division of labor is limited by the size of the world market. *d. A country exports goods for which its resource endowments are most suited. According to the factor endowment model of Heckscher and Ohlin, countries heavily endowed with land will: a. Devote excessive amounts of resources to agricultural production. b. Devote insufficient amounts of resources to agricultural production. *c. Export products that are land-intensive. d. Import products that are land-intensive. According to the _______, the export of the product that embodies large amounts of the relatively cheap, abundant resource results in an increase in its price and income; at the same time, the price and income of the resource used intensively in the import-competing product decreases as its demand falls. a. b. c. d.

Ricardian equivalence theorem Smithian equivalence theorem Stolpher-Samuelson theorem * Bernanke-Greenspan theorem

For the United States, empirical studies indicate that over the past two hundred years the cost of international transportation relative to the value of U.S. imports has: a. Increased *b. Decreased c. Not changed d. Any of the above According to the trade theory of Staffan Linde...